In a big blow to Uber Technologies and Lyft, a California appeals court has asked the companies to treat their drivers in California as employees rather than independent gig workers. This is a significant blow for both the companies which have been involved in a legal battle with the state of California. Both the companies were sued by California that claimed the companies were in violation of state law. The blow can force the companies to shut their operations in their home state. The ruling upholds that the order of a lower court that the two quintessential transportation-service companies should follow Assembly Bill 5. The compliance with the rule means the companies will have to provide drivers with all the benefits, like health benefits, that full-time employees are entitled to.

The court argued that both the companies deprived their employees of benefits that they are entitled to under the law that came into effect from January 1. The law, also known as AB-5, clearly states that employees can be treated as independent contractors only if they are totally free from the control of the company and work outside the core business of the company. The two ride-hailing companies have a massive fleet of drivers who were not entitled to the benefits of employees like minimum wage, paid sick leave, overtime, and unemployment insurance. In August, both the companies were asked to reclassify their drivers in California as employees.

At that time, both the companies threatened that they will close their operations if forced to comply with the order. The companies even appealed against the court ruling. But the appellate court said in its ruling that the injunction restraining both companies from classifying their drivers as independent contractors were valid. Attorney General Xavier Becerra said that both the companies used their clout and power to deny workers of their benefits. “It is time when these companies should start following the law.”